ECB December policy decision - Analysts react
"We believe the fundamental reason for reducing the pace of monthly purchases is that EUR80bn in asset purchases is too high, given the improving macroeconomic backdrop, especially as risks of “deflation and de-anchoring expectations” have become more of a tail event relative to Q1 2016. [...] Importantly, the reason why we still expect QE to continue in 2018 is fundamentally because the inflation dynamics are not yet self-sustaining, so the euro area economy will continue to require a high degree of monetary easing, albeit at a lower pace than currently." - Philippe Gudin, Antonio Garcia Pascual, Barclays
"Seen from a broader angle, the ECB today simply took back the increase in the size of monthly purchases which it had decided last March in reaction to widespread – if overdone – deflation concerns. As deflation risks have receded, the extra stimulus employed to counteract such risks is no longer required. However, the ECB will maintain its original pace of asset purchases, €60bn per month to keep the Eurozone recovery on track. According to Draghi, the ECB council decided with a ”very broad majority” against the alternative option of extending the €80bn purchases by six months beyond the end of March 2017." - Holger Schmieding, Berenberg
"In addition, we were surprised by the repeated reference to the point that the ECB wants to maintain a “sustained presence” in EZ bond markets. [...] Elsewhere, the formal abandonment of the deposit rate floor, if necessary, also was a dovish surprise as was the intention to include bonds with maturities of as low as one year. This signals that the ECB is willing to use the QE program to lean against increasing funding rate spreads which was the key driver of the sovereign debt crisis in 2012. It is also, however, a signal that the ECB is trying to preempt scarcity constraints in the core bond markets next year as QE is set to proceed for longer."- Claus Vistesen, chief Eurozone economist, Pantheon Macroeconomics
"By extending its asset purchases for another nine months but at a reduced monthly rate of EUR60 billion from April, the ECB is seemingly compromising between the more hawkish and dovish members of the Governing Council. [...] Indeed, Mr. Draghi spent a lot of time in his press conference finding different ways of indicating that the ECB’s move should not be considered as tapering. This is clearly aimed at trying to avoid a market taper tantrum." - Dr.Howard Archer, IHS
Presumably, the Bank has been encouraged by signs that the economy is performing well in the face of political uncertainty at home and abroad. However, it clearly remains in cautious mode. The press statement explains that “if the outlook becomes less favourable or if financial conditions become inconsistent [with its inflation goal], the Governing Council intends to increase the programme in terms of size and/or duration”. [...] In all, we see a significant chance that the ECB will have to increase the pace of its asset purchases again next year. And even if it does not, policy will be far more supportive than in the US, leading the euro to depreciate further." - Jennifer McKeown, chief European economist, Capital Economics